Wage Growth: A Regional Comparison of the West vs. the South

Despite strong employment growth nationwide, wage growth in the South still lags behind wage growth for workers in the West, according to the ADP Research Institute® Workforce Vitality Report (WVR).

While both regions experienced a 2.2 percent bump in employment, there were significant differences in wage growth for job holders. While job holders in the West grew their wages by 4.8 percent, workers in the South saw just a 4 percent bump. As the job market barrels toward full employment, economic principle would suggest wage increases nationwide. But there is more at play than just supply and demand. What can HR leaders learn from the fact that skilled labor comes at a lower cost in the South?

Industry Trends

According to the WVR, it's clear that regional factors can affect wages. Concentration of type of industry in a region plays a major role in determining wage levels of the region. Share of employment in the Information sector in the West is more than 1 percent higher than that in the South, while the average hourly wages in this sector in the West is approximately $10.00 higher than in the South. The wage growth for the job holders is 5.8% in the West in the Information sector whereas it is 4.4% in the South. Both the levels and the growth rates in wages are higher in the West.

On the other hand, share of employment in Trade is about 1 percent higher in the South compared to the West. Trade sector on an average pays less than the Information sector. But even in this sector, average hourly wage in the West is about $4 higher and wage growth is 0.8 percent higher than in the South.

We might assume that the highest paid jobs are in the tech world of Silicon Valley – but does the data support that? CompTIA reports that California has nearly twice the number of information workers as any other state. Meanwhile tech workers in California, Idaho, Washington and Oregon had nearly double the average of private industry earnings. Not only is the West a tech stronghold, it could also be a particularly profitable area of the country for workers in the information and technology sectors.

Cost of Living

Cost of living also has an effect. According to the Missouri Economic Research and Information Center, there is a massive disparity in cost of living between states in the West and the South. With the U.S. average at 100 percent, California clocks in at 134.8 percent. Yet the only southern state measuring above the national average is South Carolina at just 100.5 percent. All the others stand below the 100 percent average.

The relationship between cost of living and wage is complex due to cost of living adjustment metrics used by large organizations to determine average employee wage levels as well as raises. In areas with high housing and living costs, like California, employers may feel added pressure to offer competitive wage packages.

Other Factors at Play

Industry conditions and cost of living aren't the only components of regional wage trends. It's important for HR leaders to consider other factors at play, including business size and legislative regulations, which often vary at the state level. Even workers whose wages aren't impacted by legislation or collective bargaining agreement rates could earn more or less than national averages. The Bureau of Labor Statistics reveals there are significant differences in annual pay for construction and extraction workers in the West versus the South. For example, the highest annual wage for these workers in the South is $39,870, compared with a salary of up to $65,300 in the West.

In addition, the DOL reports that the minimum wage often starts at a lower rate in most southern states. Georgia is one of only two states with a minimum wage lower than the federal minimum wage rate. Meanwhile, most states in the West have a minimum wage rate that is higher than the federal minimum rate.

Balancing Wage Trends with Worker Mobility

For HR leaders in U.S. regions experiencing slower wage growth, like the South, worker mobility should remain top of mind. Understanding how your organization's total compensation offerings stack up against a competitive set can be an important tool to retain and recruit in a tight talent market. By benchmarking your organization's compensation against others of a similar size, industry and region, you can gain insight into just how much incentive your top talent needs to stick around.